Dot-con job: How InfoSpace took its investors for a ride

Five years ago this week, at the height of the dot-com stock frenzy, a young Bellevue company called InfoSpace was worth more than Boeing.

Wall Street analysts hailed the startup, which promised to bring the Internet to everyone's cellphone, as "a new Microsoft," and its charismatic leader, Naveen Jain, as a visionary.
Microsoft co-founder Paul Allen had hundreds of millions invested. Small investors such as Bev Hess, a real-estate agent in Phillips, Neb., poured their retirement savings into what appeared to be a sure bet.

At its peak, InfoSpace was the Northwest's biggest Internet business, worth more than $31 billion. Jain, a man obsessed with being more successful than Bill Gates, was himself worth $8 billion. He bought a palatial waterfront home in Medina down the street from his idol and another nearby on Mercer Island, along with two yachts and a piece of the Seattle SuperSonics.

What Paul Allen, Bev Hess and hundreds of other shareholders didn't know was this: InfoSpace's success was an illusion, created by lies and deception.

Jain and other InfoSpace executives deceived the public by making the company appear far more successful than it was, a Seattle Times investigation has found.

The investigation — built on internal company e-mails, confidential documents filed in court and scores of interviews — found that Jain and others created the illusion of revenues with accounting tricks and dubious deals.

One e-mail from a venture capitalist to Jain captures the nature of the deals. The man refused to participate in an investment that Jain had proposed, bluntly telling Jain that if he did so, "I believe that I could go to jail."